Brazil Posts First Primary Deficit in Nearly Three Years

Dec. 28 (Bloomberg) -- Brazil in November posted its first
budget deficit before interest payments in almost three years,
as government spending continues to rise faster than tax
collection in the world’s second-biggest emerging market.

Federal and local governments, including state companies,
had a primary deficit in November of 5.5 billion reais ($2.7
billion), compared with a surplus of 12.4 billion reais a month
earlier, the central bank said in a report today in Brasilia.
The lowest estimate from 13 analysts surveyed by Bloomberg was
for a 2.2 billion reais surplus, and the median estimate was for
a 5.5 billion reais surplus. The primary deficit was the first
since March, 2010.

After interest payments, the budget had a deficit of 21.8
billion reais.

“It has been a difficult year in fiscal terms,” Tulio
Maciel, head of the central bank’s economic research department,
told reporters in Brasilia. “The level of economic activity
affected tax revenues and expenditures.”

Brazil’s tax receipts in November grew 4 percent from a
year ago, while expenditures jumped 15 percent during the same
period, Maciel said.

Tax Breaks

Brazilian authorities have expanded tax breaks for
companies and consumers while boosting government spending, as
Brazil posts the slowest growth this year among major emerging
markets. Government officials will further reduce taxes to
strengthen the economy next year, President Dilma Rousseff said
on Dec. 19.

Still, higher spending may fuel inflation, which
accelerated to 5.78 percent through mid-December and is forecast
by economists to remain above the central bank’s 4.5 percent
target for the third straight year.

The primary surplus in the first 11 months of the year
reached 82.7 billion reais, the central bank said. The
government targets a surplus of 139.8 billion reais for 2012,
about 3.1 percent of gross domestic product.

Finance Minister Guido Mantega said last month that the
government will include 25.6 billion reais in infrastructure
spending to meet its 2012 primary surplus target after tax
income dropped. Maciel said today the amount could vary between
25.6 billion reais and 40.2 billion reais.

Faster Growth

Stronger growth will allow Brazil to meet its primary
surplus goals without adjustments in both 2013 and 2014, the
central bank’s director for economic policy, Carlos Hamilton
told reporters on Dec. 20. The bank forecasts growth this year
of 1 percent. The economy will expand 3 percent to 4 percent in
2013, Mantega said today in an interview broadcast on Globo News
TV.

Brazil’s fiscal health and falling rate of debt to GDP
provided the government with an opportunity for a less rigid
fiscal policy, said Darwin Dib, chief strategist at CM Capital
Markets Asset Management.

“The government isn’t going to pay the price from the
point of view of risk aversion,” Dib said by telephone from Sao
Paulo. “If you have the opportunity to have bigger expenses
without being punished by the market, obviously any government
will adopt that position.”

Swap rates on the contract maturing in January 2014, the
most traded in Sao Paulo today, fell one basis point, or 0.01
percentage point, to 7.12 percent at 12:33 p.m. local time. The
real fell 0.12 percent to 2.0458 per U.S. dollar.

Brazil’s central government posted a primary deficit,
excluding interest payments, of 4.3 billion reais in November,
the treasury said earlier today. The central government’s
deficit comes after a 9.9 billion reais surplus in October and
compares with a median forecast of a 2.1 billion reais surplus
from 13 economists surveyed by Bloomberg.